(The following story by Chris Sorensen appeared on the Toronto Star website on July 24.)
TORONTO — Canadian National Railway Co., which recorded a 29 per cent drop in second-quarter earnings, has lowered its full-year guidance as the railroad attempts to rebound from a crippling labour dispute and foul West Coast weather.
The country’s largest railroad said yesterday it is now forecasting 5 per cent growth in earnings per share in 2007, down from 10 per cent or more previously, thanks to the impact of floods in British Columbia, two recent blockades of its line between Toronto and Montreal, and the lingering impact of a February strike by 2,800 conductors and yard service employees.
Montreal-based CN said earnings in the second quarter fell to $516 million, or $1.01 a share, compared to $729 million, or $1.35 a share, during the same period a year earlier. Revenue, meanwhile, rose 1 per cent to $2.03 billion.
“I would characterize this quarter as a bounce-back quarter,” said Hunter Harrison, CN’s chief executive, during a conference call.
Harrison said CN was now hoping to move past its thorny labour issues after a federal arbitrator ruled last week that CN employees represented by the United Transportation Union must accept the company’s offer of wage increases of 3 per cent a year for the next three years.
The workers had walked off the job for 15 days in February causing crippling delays in the shipments of everything from automobile parts to chemicals. CN had estimated that the strike impacted first quarter income by $35 million, or 7 cents a share.
CN executives also commented yesterday on rival Canadian Pacific Railway Ltd.’s confirmation last week that it had been approached by Brookfield Asset Management Inc. about a possible buyout, as well as speculation that a new owner would attempt to split CP’s operations from its infrastructure and real-estate holdings in an attempt to attract a higher valuation for the company.
Claude Mongeau, CN’s chief financial officer, said CN has previously looked at such a corporate structure, but couldn’t make the numbers work.
“Unless we’re missing something, our analysis shows that even with a rich valuation for the real estate there’s just no compelling case from an economic standpoint,” he said.
CP said in a statement last week that Brookfield’s inquiry was “inadequate” and that CP therefore declined to enter into discussions. It’s believed that CP is considered to be a more attractive takeover target than CN because of its smaller size, which would make it easier to combine with another railroad.
Nevertheless, several analysts have noted that any purchase would be complicated and that a merger would face stiff regulatory hurdles.
Mongeau also dismissed suggestions that a plan announced by CN yesterday to buy back 33 million shares, or 6.6 per cent of outstanding shares not held by company insiders, was aimed at discouraging a takeover by private equity players.
“We’re doing this on our own … not as a reaction to private equity,” he said.